Stocks fall as Fed keeps interest rates near zero

Reuters TOKYO | Updated on September 17, 2020 Published on September 17, 2020

Australia’s S&P/ASX 200 Index fell 0.9%. South Korea’s Kospi index fell 1.4%. Hong Kong’s Hang Seng Index lost 0.3%. Shanghai Composite Index fell 0.8%.   -  Reuters

Stocks fell and the dollar advanced on Thursday after the Federal Reserve pledged to keep interest rates low for a long time but stopped short of offering further on stimulus to shore up a battered US economy.

MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.82 per cent, running out of steam after five straight days of gains. Japan's Nikkei shed 0.45 per cent.

US S&P 500 futures fell 0.87 per cent in Asia on Thursday following a 0.46 per cent drop in the S&P 500 on Wall Street.

Tech shares fared worse, with the Nasdaq Composite dropping 1.25 per cent on Wednesday. Nasdaq futures dropped 1.13 per cent in Asia.

The Fed said it would keep interest rates near zero until inflation is on track to “moderately exceed” the central bank's 2 per cent inflation target “for some time.”

New economic projections released with the policy statement showed most policymakers see interest rates on hold through to at least 2023, with inflation never breaching 2 per cent over that period.

“Of course, sensible people wouldn't really hold anyone to macro forecasts that far out so we'll cross that bridge when we get to it,” said Derek Holt, head of capital markets economics at Scotiabank in Toronto. “Nevertheless, markets are priced for basically one outcome here and that is little inflation and no hikes for years to come.”

Still, with such expectations already long considered as a foregone conclusion by many investors, there was some disappointment in the market.

“By and large the Fed delivered the minimum of what had been expected by markets with a key focus on the implications of a move to 'flexible' inflation targeting,” said Stephen Miller, investment strategist at GSFM in Sydney.

The 10-year US Treasuries yielded 0.685 per cent, a few basis points above its levels before the Fed.

Currency and commodities

The US dollar gained against most other currencies. The euro dropped 0.4 per cent to $1.1767 while the Australian dollar lost 0.35 per cent to $0.7279, having erased earlier gains made after stronger-than-expected local jobs data. The Chinese yuan also dropped about 0.35 per cent to 6.7686 per dollar, stepping back from a 16-month high hit on Wednesday.

The yen moved little at 105.06 to the dollar ahead of the Bank of Japan's policy announcement later in the day, though no major policy change is expected.

With focus on new Prime Minister Yoshihide Suga, who is seen by some as a strong opponent of a higher yen, some traders said the market may be tempted to test his resolve on the currency.

“One interesting speculative trade in the near-term will be to long the yen ahead of the coming long weekend in Japan,” said a senior trading manager at a major Japanese bank.

As the dollar gains, oil prices gave up some of their big gains made on Wednesday on a drawdown in US crude and gasoline inventories, with Hurricane Sally forcing a swath of US offshore production to shut.

Brent crude dropped 0.62 per cent to $41.96 per barrel while US crude fell 0.72 per cent to $39.87 per barrel.

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Published on September 17, 2020
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